Capital Asset Pricing Model

This finance model provides a formula that calculates the expected return on a security based on its level of risk. It is composed of two components: the risk free rate and the risk premium of the particular security.

Where:

• `r_f` = Risk Free Rate
• `beta` = beta
• `r_m`= Return on the Market

The model's origin is credited to William Sharpe (1964) and John. Lintner (1965). Since then, the model has been revised to include noise factors which have been proved to have significant effect on the results e.g. literate investors who have a wide source of insights into the value of political, technology, social and business trends.